Software & I.T. Development Agreements & Open Source Software

Why Does My Company Need a Comprehensive I.T. Agreement?

Whether you are a Massachusetts software developer creating custom applications or a Boston company hiring a vendor to build a website or software custom-designed software, the I.T. development process can be very complex. The development process is rarely problem-free. Problems come in all shapes and sizes. These can include delays, cost overruns, re-designs, personnel retention, intellectual property, and payment. If not handled properly, you may find yourself heading for the courtroom and a lengthy and expensive legal battle.

Only 9% to 16% of software projects are completed on-time and within their original budgets. A study by the Standish Group estimated that 31% of I.T. projects were canceled before they are ever completed. Almost 53% of I.T. projects will cost almost twice their original estimates. These numbers do not surprise anyone in the I.T. industry.

The costs of delay and cancellation include lost opportunity and the loss of capital invested in the project. The larger the I.T. system, the greater the chance that the project will fail. In another study, researchers found that as I.T. project size increased (100,000 lines of code or more) the failure rate was greater than 65%. It’s not surprising that I.T. development projects often lead to litigation when things go wrong.

How Do I Protect My Company from the Risks of I.T. Development?

Recognizing what these risks are at the outset is key. You must carefully determine the rights and responsibilities between the developer and company in advance to avoid problems during the development process. Some common concerns to address with your attorney include:

Should the project be a time & materials or deliverables contract?

What is the proper scope of the project?

How and when will money be spent?

What are the payment schedules and milestones and what contingencies affect them?

When is performance considered to be complete?

What are the issues surrounding ownership and licensing of intellectual property?

What are the indemnification and warranty obligations?

How can the use of open source affect the project?

How can the contract be terminated if the project doesn’t go well?

Engaging qualified legal counsel before development starts is key to anticipating and avoiding problems. As your attorney, we will help you take all relevant risks and factors into consideration and present you with options and alternatives.

Frequently, litigation is a breakdown of the parties’ relationship due to failed or unresolved expectations. Those expectations could have been explored carefully before the contract was signed. Once litigation begins, disentangling yourself from the contract, if possible, is much harder, more time-consuming, and expensive. While there is no such thing as a perfect contract, engaging qualified legal counsel can help ensure that your contract is better suited to meet your needs.

Our focus on software and I.T. development means that, whether you are a developer or are hiring a developer, we can help you better protect your interests at all stages of the development process. We know where the difficulties lie before the contract is signed. You cannot wait until the project fails to learn that your company has limited or no recourse. Of course, if litigation becomes unavoidable, rest assured that your interests will be protected and that we will represent you at every stage in the proceeding.

Open Source Software

It’s hardly a secret. In the legal profession, very few attorneys draft contracts and other legal documents entirely from scratch. While all contracts have their unique elements, there’s almost always some portion that can be “cut and pasted” from other documents that an attorney has used before. The same is true with software and I.T. development. It’s common for software developers to “borrow” portions of software from other projects or to download code from the Internet. While the risks of infringement abound where a developer does this, the problem is far more complicated when a developer incorporates open source software into a company’s proprietary software.

What is Open Source?

Open source software is software whose source code is freely distributed and available to the general public. “Free,” however, doesn’t mean that there is no financial cost. Richard Stallman, one of the leading proponents of open source, has stated: “Think of ‘free’ as in ‘free speech,’ not as in ‘free beer.’” Companies such as Sun Microsystems, Red Hat Linux, and Apache have built their business models around the development of open source products. Users can modify, copy, and distribute the source code without paying the developer royalties. With proprietary software, the user would have to get the developer’s permission before they could modify the code. The theory behind open source is that innovation will occur more quickly when more people have access to source code and can collaborate to make modifications.

What are the Risks to My Company of Using Open Source Software?

The goal may be commendable, but the use of open source software in your company’s proprietary code can be devastating. If your employees or contractors make unfettered use of open source when developing your company’s proprietary products, you could be forced to release the source code to others and grant an extensive license in the entire work. Vigorous compliance efforts are essential.

Even if your company has an open source policy that regulates your on-site or domestic programmers, problems have also arisen when a company outsources its development efforts overseas. In one survey, over half of the programmers in corporate America admitted to using open source software in connection with their development efforts. Of those, approximately 40% did so without telling their superiors. It is naiveté to think that open source issues will never impact your company.

If an in-house developer incorporates portions of open source software into a proprietary product, the entire resulting work could become subject to the open source license. This could mandate liberal distribution of your source code. While it may save developers a great deal of time and effort, using open source can have a devastating impact on your company if it’s not diligent about ensuring the proprietary nature of its software.

There are over 50 types of open source licenses currently. They can each impose very different obligations on a company’s source code. It’s also not uncommon for many of these licenses—some of which were not drafted by attorneys or licensing professionals—to have provisions that conflict or contradict each other within the license itself. Further complicating this matter is that there is very little (if any) case law interpreting these licenses. How a court would even construe these licenses is unclear at this time. From a legal perspective, far more questions than answers exist in the open source field.

The threat posed by open source is not merely academic. In 2003, IBM announced its purchase of Think Dynamics, a Toronto-based software developer. During the due diligence phase, an examination of Think Dynamics’ code revealed 80 to 100 examples of open source that its programmers incorporated and attempted to pass off as their own. Consequently, because of concerns as to whether the software was still proprietary, the purchase price of the company decreased by $21 million, reduced from $67 million to $46 million, much to the considerable upset of the owners and shareholders.

In another example: Linksys, a company purchased by Cisco for $500 million in 2003, made a router allowing users to connect on a wireless network. The Linux software in the router was later discovered to be distributed under the GNU General Public License (“GPL”), one of the most influential open source licenses. The disputed software was embedded on chips provided by Broadcom. While the dispute was eventually resolved, it illustrates the dangers of incorporating open source software. In fact, the Free Software Foundation, located in Boston, Massachusetts, controls the licensing process for Linux. They have initiated hundreds of “enforcement actions” since 1991 when the current version of the GPL was first published.

What if My Company Wants to Use Open Source?

Even if your company wants to use open source software in its business model, choosing the right license is critical. Not all open source licenses are equal. Far from it. Some licenses, such as the GPL and the Mozilla Public License (“MPL”) are “reciprocal” in nature and can impose obligations on a licensee to disclose and distribute its source code and otherwise make it freely available. Some licenses are “academic,” such as the Berkeley Software Distribution (“BSD”) or Apache licenses. These types of licenses allow for the free use, modification, and distribution of software without imposing any reciprocal obligation on the licensee. In other words, academic licensees can keep their software proprietary if they choose to.

How each of these licenses addresses patent rights, copyrights, trademarks, and derivative and collective works are all critical for a company to consider before committing itself to one license or another. Furthermore, how each of these licenses relates to each other when contributions from different open source licenses are integrated into a single project can be very problematic. For example, while a contribution created under a BSD license can be used in a GPL-licensed work, a GPL-licensed contribution cannot be used in a BSD-licensed work due to incompatible license provisions. Issues such as these require careful scrutiny and in-depth legal analysis.

At the Law Offices of Daniel A. Batterman, we understand the implications of using open source software. We understand how your company’s rights in its intellectual property can be affected when open source is incorporated into your company’s projects and how your business model can be impacted by choosing an open source license. We are also familiar with the complicated legal issues that can arise when different open source licenses are used in a single project. We can help guide your company through the issues associated with using open source and can help alleviate your risks.